Bharti Airtel - Q3 FY2013 Results - First Cut
Rajesh Desai
Dear Sir/Madam,
Bharti Airtel Ltd (Bharti) announced its consolidated Q3 FY2013 results on 01 February 2013. While the company’s top line came in line with our as well as Bloomberg Consensus estimates, its bottom line lagged the estimates by a wide margin. A glimpse of the company’s Q3 FY2013 results and its reported numbers vis-à-vis estimates is as follows:
While Bharti’s top line declined sequentially 0.1% to `20,253.7 Crores, its bottom line shrunk 60.7% q-o-q to `283.7 Crores in Q3 FY2013. However, there was a onetime element included in the revenues regarding favorable TDSAT judgment on interconnection charges in Q2 FY2013, barring which it reported a 2.8% sequential growth in top line. This increase was mainly led by robust subscriber addition in Africa and improved ARPU in India. Bharti reported a sequential improvement of `8 in ARPU to `185, in India, during the quarter. Furthermore, it added over 3 Mn new users in Africa. Apart from 4.3% increase in voice usage per customer, incremental data usage also supported growth in Indian ARPU. However, a slight decline in ARPM to 42.5p in Q3 FY2013 compared with ARPM of 42.6p a quarter earlier, partially offset the impact of the above mentioned factors on ARPU. Data ARPU for the company stood at `47 during the quarter vis-à-vis `43 in Q2 FY2013.
On the margins front, Bharti’s EBIDTA margins declined 78 basis points q-o-q to 30.5% in Q3 FY2013.The sharp decline in EBIDTA Margins can also be partially attributed to the onetime TDSAT judgment impact. Additionally, sharp increase in network operating expenditure owing to high fuel prices impacted the margins. The company also reported over 30% increase in financial expenditure, which further worsen the impact of declining EBIDTA on bottom line. Including foreign exchange loss of `261 Crores, total finance costs for Bharti stood at `1,331.9 Crores in Q3 FY2013. These factors coupled with subdued bottom line performance in Africa led to depletion in its bottom line. However, the company continue to report healthy free cash flows during the quarter at `3,801.3 Crores. Notably, Africa, as well, became operating free cash flow positive during the quarter.
Although Bharti continued to report subdued performance in Q3 FY2013, we believe that the company may start reporting a reversing trend in earnings from Q4 FY2013 onwards. Furthermore, emerging regulatory clarity in the sector remains positive for the sector in medium to long term. Bharti being the leader in the industry may remain the key beneficiary of the same. In addition, the company’s ability to consistently generate healthy operating free cash flows is likely to place it better than its competitors. We are also convinced with the management’s view that worst seems to be over for the company. With this, we continue to recommend Bharti a BUY with a target price of `417.20 per share.
Regards,
Team Microsec Research
Microsec Capital Limited
Tel: 91 33 30512100
Fax: 91 33 30512020
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CA. Rajesh Desai